Short-term growth prospects remain favorable, and economic policies have been effective in responding to an array of domestic and external pressures in the past year, Fitch said.

In a Reuters poll of 65 economists, China’s economic growth is expected to reach 6.6% this year, topping the government’s target of around 6.5%.

But large and rising debt levels across the non-financial sector, combined with the low stand-alone credit quality of Fitch-rated banks in the financial system, remain the most significant risk factor for the sovereign rating, Fitch said.

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In May, Moody’s Investors Service cut its sovereign ratings on China by a notch, putting them on par with those of Fitch. That move put Standard & Poor’s one step above the two agencies.

Moody’s had said it expects the financial strength of the world’s second-largest economy to erode in coming years as growth slows and debt continues to mount.

Fitch said it expects official aggregate financing excluding equity to rise to 208% of gross domestic product this year versus 201% in 2016 and 114% in 2008.

It estimates that a broader credit measure, which incorporates activity not directly captured in the official series, will rise to around 270% at end-2017.

Household debt remains moderate despite its rapid growth in recent years, but China’s corporate sector has become the most highly indebted among major economies, based on data from the Bank for International Settlements, Fitch said.

Chinese banks extended 1.54 trillion yuan ($227 billion) in net new yuan loans in June, well above analysts’ expectations of 1.2 trillion yuan, and up from 1.11 trillion in May, official data shows.

The stronger-than-expected loans suggest authorities are maintaining support for the real economy, even as they tighten regulations to force banks to deleverage.

But household loans accounted for 48% of total new loans in June, down from 55% a month earlier.

The effects of the government’s multi-pronged crackdown are also showing up in weakened off-balance sheet financing, or shadow banking activity.

Combined trust loans, entrusted loans and undiscounted banker’s acceptances, which are common forms of shadow banking activity, dipped to 428.8 billion yuan in the second quarter from 2.05 trillion yuan in the first three months, according to Reuters calculations.